Tullow Oil has rejected a Ksh23 billion tax claim by the Kenya Revenue Authority (KRA) for alleged unpaid Value Added Tax and Capital Gains Tax arising from the disposal of its Kenyan subsidiary to Gulf Energy.
The oil and gas firm said the assessment is wholly without merit and confirmed that it intends to challenge the claim through the formal objection and appeal processes available under Kenyan tax law.
The dispute relates to the sale of Tullow Kenya BV, which was fully owned by the group, to the Gulf Energy Group.
The transaction involved a minimum consideration of $120 million (Ksh15.5 billion).
KRA has assessed the company approximately $170 million, equivalent to about Sh23 billion, claiming underpaid taxes linked to the disposal.
Tullow Oil maintains that its tax position on the transaction is sound and compliant with applicable laws and agreements, and that the assessment is unjustified.
Why Tullow is challenging KRA
Tullow Oil said it has taken a clear and firm position that the assessment issued by KRA is unjustified and will be fought jointly with Gulf Energy under Kenya’s established tax dispute mechanisms.
“The Group’s clear and firm position is that the assessment is wholly without merit, and it intends, in conjunction with Gulf Energy, to contest the assessment through the regular objection process,” the company stated.
Under Kenyan tax law, taxpayers may lodge objections to assessments issued by KRA before the matter proceeds to the Tax Appeals Tribunal or the courts if no agreement is reached.
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Tullow Oil insisted that the move to contest the assessment does not expose the company to immediate financial pressure, noting that it does not expect any cash outflow during the objection or appeal stages.
“There will be no cash outflow in respect of lodging these objections, nor does the Group expect cash outflow on completion of its appeal process,” Tullow Oil added.
As a result, the company confirmed that it has not set aside any money in its accounts to cover the disputed amount.
“Therefore, a provision for uncertain tax treatments in respect of this risk has not been recorded,” the statement added.
How Kenya Taxes Asset Sales in the Oil Sector
Kenya taxes asset sales in the oil and gas sector mainly through Capital Gains Tax, Value Added Tax, and, in some cases, withholding tax.
The applicable taxes depend on how a transaction is structured and where the assets are legally located.
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Capital Gains Tax is charged at five percent of the net gain arising from the transfer of property situated in Kenya.
In the oil sector, this includes petroleum rights, exploration and production licenses, and shares in companies whose value is derived primarily from Kenyan oil assets.
Kenyan law allows the KRA to tax gains from indirect transfers, such as when a company sells shares in an offshore entity that owns Kenyan oil assets.
Value Added Tax may apply where KRA determines that a transaction amounts to the supply of taxable goods or services. VAT is charged at 16 percent.
Disputes often arise over whether a transaction is a share sale, which is generally exempt, or a business or asset transfer, which may be taxable.
Withholding tax can apply when payments related to the transaction are made to nonresident entities.
The rate depends on the nature of the payment and any applicable double taxation agreement.
KRA reviews large oil and gas transactions through audits, sometimes years after they are completed.
When KRA issues an assessment, taxpayers may file a formal objection.
If the objection is rejected, the dispute can proceed to the Tax Appeals Tribunal and, subsequently, to the courts.
These tax rules apply to both local and foreign companies engaged in the acquisition or disposal of oil and gas assets in Kenya.
